Quick Overview:
- On June 8, 2017, Binance launched Binance Coin (BNB) and started the trend of issuing platform tokens;
- Platform tokens that perform well have one similarity: the burn rates and the ratio of the total burned each time to the issuance volume are high in some level.
- Platform token value is a combination of their utility and their burn rates.
On July 11, 2019, Binance announced that it completed the eighth Binance Coin (BNB) token burn, with a total of 808,888 BNB, equivalent to over $23.7 million at press time;
On October 22, 2019，Huobi announced it completed $40 million worth HT Burn for Q3；
On February 10, 2020, ZB.com announced it completed the burn of all 293 million ZB held by the team and 107 million ZB held by the User Protection Fund, with a total of 400 million ZB, equivalent to over $150 million;
This kind of “burning money with nothing” behavior may seem a bit “stupid” to the outsiders, but as the head and the most profitable companies of the industry, how would exchanges do the business of losing money? To understand their intentions, we must return to the original – the birth of platform token.
During the ICO boom of 2017, several exchanges jumped on the opportunity to fund themselves by issuing a digital token. Leading crypto exchange Binance launched in 2017 after conducting a successful ICO that raised $15 million through the sale of Binance Coin (BNB).
Despite the imaginable risks, there is no doubt that the key to the success of the ICO is its reputation as a platform. And Binance, as a leading exchange in the crypto space, has enough followers to be the first adopter. Imagine if a small, little-known exchange were the first to issue platform token, it might lead people to suspect that this is a pyramid scheme.
Following the popularity of the Binance token sale, other exchanges – such as Huobi, ZB.com and OKEx – followed suit to capitalize on the ICO boom and the popularity of exchange tokens.
Of course, those who buy platform token are not fools, but rather forward-looking investors. Because platform token has not only an investment attribute, but also tool attributes. When issuing platform tokens, exchanges often describe to investors the benefits attached to their platform tokens.
Investors in platform tokens receive benefits like the utility of trading fee discount, dividend payouts, a share of exchange profits or revenues and access to airdrops and voting rights on new listings, etc. We all know that exchanges rely on fees for the bulk of their revenue, so fee discounts are tempting for professional traders, plus a wealth of other tool attributes then the heat of ICO makes sense.
Then why would an exchange burn tokens when it already makes so much profits?
The answer, of course, is that it makes its platform token more valuable!
Many, but not all, issuers of exchange tokens operate buybacks or/and burn events, removing them permanently from circulation. The potential benefit for the crypto trader is that as the supply of tokens decreases, their value increases – basic supply and demand relationship.
Those exchanges vary widely in terms of the rate of token burns and their frequency. One commonality between token burns, however, is that they are funded by fees earned by the exchange over a particular period of time. (e.g., the trader uses token to deduct transaction fees) or a portion of token held by the exchange at the beginning (e.g., recently ZB.com burned all ZB held by its team).
Based on supply and demand, we need to be careful if the token price does not increase after the exchange operate buyback or burn event, for the token you bought may not be so liquid or valuable (price gouging).
The following table shows some platform token gains in different periods:
From the table we can see the top performers are BNB (Binance), HT (Huobi), OKB (OKEx), ZB (ZB.com) and BIX (Bibox). Among those doing particularly well are BNB and OKB, which could be a dividend from the recent mini-bull market.
Platform tokens that perform well have one similarity: the burn rates and the ratio of the amount of tokens burned each time to the total of tokens in circulation in the market are high in some level.
According to CoinMarketCap, we can get the data of token burned by the following exchanges:
The original issuance volume of OKB (OKEx Token) is 1 billion, 713.9 million OKB were burned, and remaining 28.60% in the circulation;
The original issuance volume of HT (Huobi Token) is 500 million, 42 million HT were burned, and remaining 91.6% in the circulation.
The original issuance volume of BNB (Binance Token) is 200 million, 17 million BNB were burned, and remaining 91.5% in the circulation.
The original issuance volume of ZB (ZB.com Token) is 2.1 billion, 1.4 billion ZB were burned, and remaining 33.33% in the circulation.
From above data, we can get a ranking of the percentage of the total burned to total issuance volume:
OKB＞ZB＞BNB＞HT
And a ranking based on the gains of these platform tokens within 180 days is as follows:
OKB＞HT＞ZB＞BNB
In terms of burn amount, OKEx is the most, while the HT is the least. As for the gains of these platform tokens within 180 days, OKB gets the most, BNB gets the least.
Platform token value is a combination of their utility and their burn rates. Utility creates demand, whereas burning reduces supply. Investors are suggested to compare the market caps of the tokens, their burn rates, and exchange volumes to estimate the appropriateness of token prices.
In the end
Unlike BTC, ETH and LTC and other mainstream digital currencies, which have gone through the market test and accumulated a deep user consensus, platform token only relies on the operation and revenue of the exchange itself to survive, which shows its limitations and vulnerability. Investors and traders need to be more careful in choosing and investing in platform tokens. And only by measuring the strength of an exchange and noticing its burn frequency can lead to a safer and wiser investment.
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